Madras H.C : This judgment will govern the above writ petitions, which are filed under Art. 226 of the Constitution of India.

High Court Of Madras

Indian Institute Of Architects vs. Union Of India

Sections 1994FA 65(48), 1994FA 66, 1994FA 67(o),

1994FA 67(r), 1994FA 67(s), Art. 14, Art. 248,

Art. 276(2), SCH. VII, List I, Entry 97

V.S. Sirpurkar & A. Kulasekaran, JJ.

Writ Petn. Nos. 16297, 17833, 17834, 18129 & 20066 of 1998;

847, 6449 & 7411 of 1999 and 345, 8539 & 19856 of 2000

30th April, 2001

Counsel Appeared : Arvind P. Datar, R. Senthilkumar, Chitra Narayan, N. Dhanasekaran, Mohan Parasaran, N. Inbaragam, Meenakshisundaram, B.R. Ramesh Babu & T. Susindaran, for the Petitioners : M. Chandrasekaran & Veeraraghavan, for the Respondents

JUDGMENT

V.S. SIRPURKAR, J. :

This judgment will govern the above writ petitions, which are filed under Art. 226 of the Constitution of India. Out of the above writ petitions, while W.P. No. 8539 of 2000 is filed by the Indian Institute of Architects Association, Tamil Nadu Chapter on behalf of the architects in general, who are registered under it as the practising architects, rest of the writ petitions pertain to the chartered accountants and have been filed by the various representative bodies of which the practising chartered accountants are the members since the question involved is identical in all these petitions and they are being disposed of by this common judgment.

2. Shortly stated the architects and chartered accountants are challenging the constitutional validity of the provisions of the Finance Act by which the services offered by the architects and chartered accountants have been brought under the tax-net, which is to be charged at five per cent of the value of the taxable service provided to any person by the architects or the chartered accountants. Sec. 116 of the Finance (No. 2) Act, 1998 is in challenge, as amending the Act 32 of 1994, and has first defined the said services and included them in the tax- net. The relevant portions of the Finance Act are as under : “65. Definitions—In this Chapter, unless the context otherwise requires, — (1) to (4) ***** (5) ‘architect’ means any person whose name is, for the time being, entered in the register of architects maintained under s. 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture; (6) to (30) ***** (31) ‘practising chartered accountant’ means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of chartered accountancy; (32) to (47) ***** (48) ‘taxable service’ means any service provided,— (a) to (o) ***** (p) to a client, by an architect in his professional capacity in any manner; (r) ***** (s) to a client, by a practising chartered accountant in his professional capacity, in any manner;”

The other features of the Act are that the providers of the services, i.e., ‘architects’ and ‘practising chartered accountants’ are assessees under the Act and are responsible for collecting the said tax at the prescribed rate. The relevant section, s. 66(4), reads as follows : “66. Charge of service tax—(1) to (3) ***** (4) With effect from the date notified under s. 116 of the Finance (No. 2) Act, 1998, there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-cls. (p), (q), (r), (s),(t),(u), (v), (w), (x), (y) and (z) of cl. (48) of s. 65 and collected in such manner as may be prescribed.” The said valuation of the ‘taxable services’ is provided in s. 67. The relevant provisions are as under : “67. Valuation of taxable services for charging service tax—For the purposes of this Chapter, the value of taxable services,— (a) to (n) ***** (o) in relation to the service provided by an architect to a client, shall be the gross amount charged by such architect from the client for services rendered in professional capacity in any manner; (p) and (q) ***** (r) in relation to the service provided by a practising chartered accountant to a client, shall be the gross amount charged by such accountant from the client for services rendered in professional capacity in any manner;”

3. The main and the only challenge to the relevant provisions inflicting the tax liability is on the ground of lack of ‘legislative competence’ on the part of the Parliament. According to the petitioners, the ‘architects’ and ‘chartered accountants’ are the ‘professionals’, which professions are governed and controlled by the separate enactments and, therefore, considering the pith and substance of the present enactment, inflicting the tax, it is nothing but a ‘tax on profession’, trade, business and calling, which is covered under Entry 60 of the State List (List II). The petitioners further contend that the so-called ‘service tax’ is presumably being inflicted under the ‘residuary entry’, i.e., Entry 97 of the Union List (List I) provided by Art. 248 of the Constitution and since the said challenged tax falls under Entry 60 of the State List (List II), the Parliament was not competent to legislate the present enactments.

4. It will be better to see the wordings of Art. 248 and Entry 60 of the State List (List II), which read as under : “60. Taxes on professions, trades, callings and employments.”

5. Before we venture upon to consider the rival contentions, it will be better to see the legislative history of the Finance Act providing taxation on the various ‘services’.

6. In the budget presented in February, 1994, ‘service tax’ was sought to be levied on stock brokers, non-life insurance agents and telephone bills. The provisions came into being w.e.f. 1st July, 1994. It was during that budget presentation speech that the need for taxing the service sector was reiterated realising that the service sector constitutes about 40 per cent of the National GDP which till then was tax-free. The need was all the more felt to tax the service sector because while the ‘goods’ manufactured were taxed, the ‘service sector’, which was growing rapidly and was bound to grow further was, however, generally ignored. The tax-net was then widened by the Finance Act (No. 2), 1996 to include some other service sectors. By the Finance Act, 1997, twelve additional services were introduced and included as the taxable services and ultimately by the Finance (No. 2) Act, 1998, number of other services came to be included, including the architects, practising charteredaccountants, practising cost accountants, practising company secretaries, etc., which provisions are now under challenge.

7. The main argument for the petitioners was addressed by Mr. Arvind P. Datar, the learned senior counsel and Mr. Mohan Parasaran, the learned counsel and their arguments were adopted by the other learned counsel appearing on behalf of the petitioners. The contentions of the learned counsel are as under :

8. The first contention is that even if the said tax is described as a ‘service tax’ or a ‘tax on services’, in pith and substance, this tax is ‘on’ profession. The learned senior counsel, Mr. Datar, argues that unlike the other services, which are not governed or controlled by the legislative enactments, in case of architects and charteredaccountants, there is a central legislation. While architects are governed by the Architects Act, the chartered accountants are governed by the Chartered Accountants Act. These enactments control the professions of architects and chartered accountants. The contention is that any tax which relates to the professional services has to be necessarily viewed as a tax ‘on’ professional because if the concerned person was not engaged in that profession, then there would be no question of taxing the said person. The learned counsel argues that the aspect of service cannot be separated from the profession as the professional has no other task except providing his professional services.

9. Our attention is then drawn to the language of the taxable service and it is pointed out that therein what is taxed is the service rendered by an architect or the chartered accountant in his ‘professional capacity’. Both the learned counsels argue that to offer a service in the professional capacity is the only thing that a professional can or be expected to do and, therefore, any tax in relation to that service has to be integrally connected to the profession. According to the learned counsel, once this position is clear, then if the legislative competence is being sought from the residuary power, i.e., Entry 97 of the Union List (List I), that would be clear breach of Art. 248(1) as any tax ‘on’ professional is already covered by Entry 60. According to the learned counsel, the true test would be to examine as to whether the State Government could have legitimately legislated the impugned legislation. The learned counsel argues that if the answer is ‘yes’, then the impugned legislation is clearly beyond the legislative competence of the Parliament owing to the positive language of Art. 248(1). For this purpose, Mr Datar argues that ss. 65, 66 and 67 should be bodily lifted from the Central enactment and treated as if it is a State enactment. The learned counsel argues that there would be no impediment or fetter against the State Government as such the enactment would have to be held within the legislative competence of the State legislature with the aid of Entry 60. Mr. Mohan Parasaran also supported the said argument by pointing out that the language of the impugned legislation itself was clear enough to suggest that the legislation was integrally connected with the profession.

10. Mr. Chandrasekaran, the learned senior counsel appearing on behalf of the respondents, however, defended the constitutionality of the enactment and the legislative competence of the Parliament contending that in pith and substance this legislation could not be said to be a tax ‘on’ profession though it related ‘to’ the profession. The learned counsel contended that even if the language of Entry 60 is to be construed in its widest amplitude, the present legislation could not be said to be inflicting a tax ‘on’ profession, trade, calling, etc. The learned counsel further argued that if this tax had been inflicted, by the State Government, as is suggested by the learned senior counsel for the petitioners, then, it would have been surely hit by the provisions of Art. 276. The learned counsel points out that in the present scheme, the tax liability is not limited but may go beyond the limits of Rs. 2,500 fixed by Art. 276(2). The learned counsel also argued that the nature of tax is entirely different and merely because it relates ‘to the’ profession, it cannot be said to be a tax ‘on’ profession. The learned senior counsel for the respondents did not dispute the position that the Parliament has taken the resort to the residuary power under Art. 248 read with Entry 97 of the Union List (List I) for enacting the present legislation.

11. It will be seen that in the decision in Subramani Chettiar vs. Muthusami Goundan AIR 1941 FC 47, the Court had observed as follows : “But resort to that residual power should be the very last refuge. It is only when all the categories in the three lists are absolutely exhausted that one can think of falling back upon a nondescript.” The learned senior counsel on behalf of the respondents did not dispute the position that this tax was a ‘nondescript’ because it has not so far been described anywhere. The learned counsel, however, contended that it is sui generis. We will consider the argument regarding the nature of the legislation and the tax a little later but before that we must observe that the observations of the Federal Court quoted above related to the position under theGovernment of India Act, 1935 where the relevant section was in the same terms as Art. 248.

12. In a celebrated decision of the Supreme Court in International Tourist Corpn. vs. State of Haryana AIR 1981 SC 774, Justice Chinnappa Reddy observed as follows : “7. Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State legislative must be clearly established. Entry 97 of List I in the Seventh Schedule itself is specific that a matter can be brought under that Entry only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in either of those lists. In a Federal Constitution like ours where there is a division of legislative subjects but the residuary power is vested in Parliament, such residuary power cannot be so expansively interpreted as to whittle down the power of the State legislature. That might affect and jeopardies the very federal principle. The federal nature of the Constitution demands that an interpretation which would allow the exercise of legislative power by Parliament pursuant to the residuary powers vested in it to trench upon State legislation and which would thereby destroy or belittle State autonomy must be rejected…..” [p. 777]

13. In Union of India vs. Harbhajan Singh Dhillon AIR 1972 SC 1061, the Supreme Court observes : “58. Be that as it may, we have three lists and a residuary power and, therefore, it seems to us that in this context; if a Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further question arises.” It is, for this reason alone, that the learned senior counsel Mr. Datar as also Mr. Parasaran argued that in pith and substance, the tax covered by the impugned legislation is nothing but a tax ‘on’ profession and, therefore, the impugned legislation comes under Entry 60 of the State List (List II). Regarding the theory of ‘pith and substance’ also the law is well- settled. There is almost an unanimity that where a comparison is made between Entry 97 of the Union List (List I) and any other entry in the State List (List II), then the language in the State List (List II) has to be given the widest possible interpretation. It will, therefore, be our first task to examine the true nature and scope of the present legislation, the tax imposed by it and the pith and substance thereof.

14. We would first go to the ‘language’ of the impugned legislation. The language of s. 65(48)(p), (s) was specifically relied on by both the learned counsels for the petitioners. It is pointed out the ‘taxable service’ provided by an architect or a chartered accountant ‘in his professional capacity’ was made taxable. Both the learned counsels urge that the words ‘in his professional capacity’ are extremely significant and would suggest that what is being taxed is ‘what a professional does for his client’. The learned counsel Mr. Datar argued that the term ‘professional’ has a specific connotation. He reminded us that both of these professions are governed and controlled by specific enactments and there is a supervising or controlling body in both the professions which issues licences to the members and then alone, the concerned persons can practice as an architect or chartered accountant. From this, the learned counsel pointed out that the other services though are made taxable services are not the services provided by the professionals stricto sensu. The learned counsel also pointed out that what would apply to s. 65(48)(p) and (s) would apply in the same manner to sub-cls. (t) and (u) of s. 65(48) which are in respect of practising cost accountants and practising company secretaries. Then again it is pointed out that even these two can be called ‘professions’. The learned counsel argues that it is only in these four professions, which are governed and controlled by the separate enactments that the services rendered to the client in the professional capacity has been made taxable and, therefore, such service cannot be considered to be separate from the profession itself because the professionals have no other task to do excepting to provide the professional services and it is only on account of that, that they become taxable even under the ‘professional tax’ inflicted under Entry 60. The argument goes further and says that, therefore, the tax levied against the ‘professional services’ given in a professional capacity, i.e., as an architect or as a chartered accountant, has to be viewed as a tax on profession itself. The learned counsels pointed out that the terms ‘services rendered in a professional capacity’ is not made applicable to any other services covered in s. 65(48) barring the abovementioned four services, which services are governed by specific enactments. The learned counsel also points out that while valuing the said services, s. 67(r) and (s) provide that the ‘gross amount’ charged for the services rendered in the professional capacity has been viewed as the valuation of the taxable service rendered. In short, the argument is that the service offered which has been made taxable cannot be different from the profession itself because the professional does nothing less except giving the professional service.

On the backdrop of these arguments, when we see the language of Entry 60, one realises the stark difference in the language. While the impost under s. 65(48) is against the services in the matter of service tax, the impost of a professional tax has to be necessarily against the profession itself. Entry 60, which runs as ‘Taxes on professions, trades, callings and employments’ suggests that it is a tax on profession, trade, calling or business. The question that we ask is: whether a tax in profession can be viewed to be a tax on services or vice versa? We feel the two are separate and distinct. Mr. Chandrasekaran, while describing the ‘service tax’ urged that it is sui generis and it is a complete statute providing for (i) tax on the services: (ii) it defines the taxable services: and (iii) it also provides the measure thereof. While dealing with this, the apex Court in Laghu Udyog Bharati vs. Union of India (1999) 156 CTR (SC) 270 : (l999) 112 ELT 365 points out that s. 66, which is a charging section, has to be r/w s. 65(d)(41) [now s. 65(48)]. In para 8, the Supreme Court says, it is clear from the reading of these provisions that, according to the Finance Act, the charge of the tax is on the person who is responsible for collecting the service tax. It is he who by virtue of provisions of s. 65(5) is regarded as an assessee. He is the person who provides the services. After taking the resume of the machinery under the Finance Act, this is what the Supreme Court says about the service tax in para 9 : “. . . . . . . . The service tax is levied by reason of the services which are offered. The imposition is on the person rendering the service. Of course, it may be an indirect tax, it may be possible that the same is passed on to the customer but as far as the levy and assessment is concerned it is the person rendering the service who alone can be regarded as an assessee and not the customer. This is the only way in which the provisions can be read, harmoniously.” [p. 370]

From this the learned counsel pointed out the unique nature of this Act. We are in complete agreement with the learned counsel considering the fact that so far the ‘service sector’ was almost ignored for the purposes of the tax and, the present Finance Act aims at that service sector. The taxation which aimed at three services to begin with the scope thereof has now been broadened and various services, including the professional services, have now been taken into fold. The Supreme Court observed as follows : “Now it is true that the speeches made by the members of the legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of the meaning, everything which is logically relevant should be admissible.”

The Supreme Court in this case, was considering the scope of s. 52(2) of the IT Act, 1961. We have referred to what was said by the Finance Minister in 1994 during the budget session. The whole thrust of this legislation was against the services which constitute 40 per cent of the National G.D.P. This would provide a very important angle while considering the real nature of this legislation. In our opinion, considering the language which aims at the ‘service sectors’ alone, in the light of the attendant circumstances like the purpose and object of the enactment, it cannot be said that this subject of legislation is not sui generis and in reality pertains to a field of ‘State legislation’.

17. In Western India Theatres Ltd. vs. Cantonment Board AIR 1959 SC 582, Chief Justice S.R. Das, had following words to say about the tax on profession : “. . . . . . . . The entry, as we have said, contemplates a law with respect to these matters regarded as objects and a law which imposes tax on the act of entertaining is within the entry whether it falls on the giver or the receiver of that entertainment. Nor is the impugned tax a tax imposed for the privilege of carrying on any trade or calling. It is a tax imposed on every show, that is to say, on every instance of the exercise of the particular trade, calling or employment. If there is no show, there is no tax. A lawyer has to pay a tax or fee to take out a licence irrespective of whether or not he actually practises. That tax is a tax for the privilege of having the right to exercise the profession if and when the person taking out the licence chooses to do so. The impugned tax is a tax on the act of entertainment resulting in a show . . . . .” [p. 585] Identical enough if a chartered accountant or an architect who is paying professional tax does not give any service, though he chooses to be on the roll of architects or the chartered accountants would not be required to pay the present tax. The aforementioned judgment in Western India Theatres Ltd.’s case (supra), has remainedundisturbed throughout. In Kamta Prasad Aggarwal vs. Executive Officer AIR 1974 SC 685, the Supreme Court observed. “. .

. . . . . . A tax on profession is not necessarily connected with income. This is clear from the tax on professions imposed by several municipal authorities at certain rates mentioned in the relevant statutes. A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income.” [p. 686]

The significance of Kamtaprasad Aggarwal’s case (supra) is that therein there is no reference to the earlier decision in Western India Theatres Ltd.’s case (supra). Even the Kamtaprasad Aggarwal’s case (supra) has remained uncontradicted so far. The learned senior counsel, however, contended that the observations regarding the professional tax made in Western India Theatres Ltd.’s case (supra) could not be said to be ratio decidendi of that decision. The learned counsel urges that the judgment cannot be interpreted to mean that the tax on profession must be only on the privilege of carrying on a particular profession. The further argument is that it is open to the State Government or the Local Boards to levy the tax on professional with reference to his ‘gross income’ as a measure of tax. Even as regards the observations in Kamta Prasad Aggarwal’s case (supra), the contention was that the decision is not an authority for the proposition that tax on profession cannot have reference to gross professional receipts. We do not think that the comment about the Kamta Prasad Aggarwal’s case (supra) or the Western India Theatres Ltd.’s case (supra) is correct. We have pointed out that the observation in Western India Theatres Ltd.’s case (supra) have remained undisturbed right from 1959 and the view of the Supreme Court that a tax on profession can be imposed if a person carries on a profession and that such tax on profession is irrespective of the question of income has remained undiluted or undisturbed for all these years. We have no hesitation in observing that the observations in these two cases really clinch the issue insofar as the nature of a professional tax is concerned which is covered by Entry 60 of List II. In the same line is the decision in R.R. Engg. Co. vs. Zila Parishad Bareilly AIR 1980 SC 1088. The learned counsel tried to urge that these observations were only in the nature of orbiter and, in fact, either Western India Theatres Ltd’s case (supra) or Kamta Prasad Aggarwal’s case (supra), was not an authority for the proposition that the tax on profession could have reference to ‘gross professional receipts’. The learned counsel contended that in none of the cases, the Supreme Court wasconsidering the implications of Entry 60 of List II and the professional tax covered thereby. The learned counsel also relied on the decision in Mittal Engg. Works vs. CCE (1997) 1 SCC 203 and more particularly the observations made in para 8 in that case to the effect that a decision cannot be relied upon in support of a proposition which was not decided by that decision. It was therefore, urged that Western India Theatres Ltd.’s case (supra) and Kamta Prasad Aggarwal’s case (supra) were not the authorities for the proposition that Entry 60 in List II will be confined only to levying tax on the right or the privilege to carry on a particular profession. According to the learned counsel, the decisions only made it clear that the tax on professions could be levied irrespective of whether the professionals earned any income out of that profession or not. According to the learned counsel, these decisions did not take away the powers of the State to levy professional tax based on income. We are unable to agree with all these contentions.

In Western India Theatres Ltd.’s case (supra), the Supreme Court was considering the ‘entertainment tax’, which was payable per show. We have already quoted the relevant observations in our judgment which clearly go to show that the observations made regarding the professional tax are not as restrictive as the learned counsel suggests. The Supreme Court therein clearly brought out the distinction that if there was no show, there was no tax while the professional tax, which a professional has to pay, is irrespective of whether he actually practices that profession or not. In describing the professional tax, the Supreme Court very clearly brought out the distinction between ‘professional tax’ and ‘entertainment tax’. Similar is the position in Kamta Prasad Aggarwal’s case (supra). In that case, the Supreme Court said a tax on profession is not necessarily connected with income (sic) and pointed out that even as per the Supreme Court, a tax on profession could not be connected or linked with the income. The learned counsel also argued that there are other instances where the Courts have viewed that the professional tax could be connected with income. Reliance was placed on the decisions in Sushil Chander Anand vs. State of U.P. AIR 1969 All. 317 and T.K. Abraham vs. State of Tranvancore-Cochin AIR 1958 Ker. 129. First is the Full Bench decision where it was observed in para 7 of the judgment that the subject-matter of the tax in case of ‘professions’ is not the income and that the reference to income is only as a measure of tax and that the ceiling of Rs. 2,500 only shows that the income cannot be the subject-matter of tax but only be a measure of tax. In the second-mentioned case of T.K. Abraham’s case (supra), it is observed in para 25 that the case of the professional tax can be either ‘occupation’ itself of ‘income’ derived therefrom. Using these two decisions, the learned counsel tried to argue that besides Western India Theatres Ltd.’s case (supra) and Kamta Prasad Aggarwal’s case (supra), which were not the be all and end all of the matter in respect of the professional tax, it can be said that the professional tax can be linked with income and, therefore, the service tax, which was linked with the income, could be straightaway viewed as a professional tax covered in Entry 60 and, therefore, outside the legislative competence of the Parliament.

The argument is incorrect. In the first place, we are not with the learned counsel when he says that the above- mentioned two cases of the Supreme Court did not clinch the issue regarding the profession tax. In both these cases, it is very clearly stated that a tax on profession is irrespective of the question of income and it can be imposed if a person carries on a profession. Therefore, the nature of the profession tax is clearly held by the Supreme Court to be a tax on account of the fact of the particular professional carries on that profession and nothing more than that. The judgments of the Allahabad High Court and Kerala High Court cannot be relied upon to wipe out the observations made in the Supreme Court judgments and, therefore, have to be ignored. As it is the learned counsel that had relied upon those judgments, just to show that the profession tax could be linked with the income. What would ensue if the profession tax is linked with the income would be considered by us when we discuss the scope of Art. 276. The learned counsel also contended that we must read ss. 65, 66 and 67 differently and in case they were bodily lifted from the Central enactment and treated as if they were a part of the State enactment, they would have certainly been within the competence of the State legislature because of Entry 60 of List II. For this purpose, the learned counsel relied on the language of the sections to which we have already made a reference earlier. The learned counsel argued further that since the professionals like architects, chartered accountants and cost accountants can give nothing except their ‘services’ and if those services are made taxable, then there would be a link between those services and the profession and in effect, it would be a tax on profession. We do not agree because we are completely convinced that the apex Court has been looking at the professional tax as the tax for having a privilege to carry on that profession in that State. In both the earlier referred cases of Western India Theatres Ltd.’s case (supra) and Kamta Prasad Aggarwal’s case (supra), the Supreme Court has very clearly said that the professional tax has no connection or link with the income thereof. It virtually means that a privilege to practice a profession has got no relation or link with the income thereof, which comes only as a result of the services provided by the professionals. Therefore, there is a clear distinction between the privilege to carry on a profession and the services offered as professional which result into the income from that profession (sic) (contention) that the service tax could have been legitimately charged by the State Government under a State enactment is clearly incorrect and it has to be held that while the profession tax deals with the privilege to practice a particular profession, the present service tax deals with the ‘services’ provided by the professionals and, therefore, the two are distinct and separate and the service tax cannot be viewed or confused as a tax on profession.

During the course of the arguments, the learned counsel urged that the State Government could have legitimately levied a tax and the measure of the tax could have been linked with the income. The argument was that in that event, the nature of the tax could not have been decided in relation to the measure of the tax. The learned counsel argued that the nature of tax cannot be decided upon the basis of the measure of the same and, therefore, even if the State Government had provided such a measure by linking the tax to the income therefrom, it would not have been possible to hold that the tax is bad for the lack of legislative competence on the part of the State Government. We are afraid the argument cannot stand on the touchstone of Art. 276(2) which provides a ceiling to the tax of Rs. 2,500. Now, as proposed by the learned senior counsel, if the measure of the tax had been linked with the income, there could not have been any limit provided by the State and if the tax had exceeded Rs. 2,500, then such provisions would have been hit by Art. 276(2). Therefore, any provision which was likely or capable of committing a breach of Art. 276(2) would clearly be void and, therefore, vitiated. In our opinion, Art. 276(2) itself creates a fiction that though a tax on profession relates to an income therefrom, it will not be so and by the creation of a limit to the profession tax cl. (2) of Art. 276 itself suggests that income from the profession is irrelevant in the matter of tax on profession. It is only with that idea that cl. (2) creates a limit. The creation of the limit itself gives a distinct character to the tax on profession and, therefore, a tax which is not fettered by a limit like one created by Art. 276(2) and which relates to the professional income, cannot be viewed as a profession tax. The contention raised by the learned senior counsel for the petitioners regarding the language of the provisions levying the service tax was that under s. 65(48)(p) and (s) what was made taxable was the services offered by a professional in his ‘professional capacity’. Our attention was also invited to the provisions in respect of the practising cost accountants and company secretaries, which say that only the professional services offered by them were made taxable. So also, the argument was directed by the learned counsel for the petitioners that for (sic) for the services rendered by a professional in his ‘professional capacity’ would be the valuation of the ‘taxable service’. It was on this backdrop that we have proceeded firstly to consider, as to what is the implication of a professional tax as covered by the Entry 60 of List II. We have then pointed out as to what is the view taken by the Supreme Court regarding the professional tax and how it would be different from the service tax, whichessentially is not qua the profession but qua the services provided by the professionals in their ‘professional capacity’. However, the argument of the learned counsel went further and proceeded on the lines that by the very language of the impugned provisions, the aspect of profession could not be separately viewed from this service tax and the profession or the income therefrom. Which was specifically referred to in the impugned provisions, was bound to be treated as an integral part of the service tax and, therefore, it could not be separated and, therefore, in reality the said service tax would have to be viewed only as a professional tax.

29. This argument was countered by the learned standing counsel for the respondents by relying on the decision by the Supreme Court in Federation of Hotel & Restaurant vs. Union of India (1989) 77 CTR (SC) 141 : AIR 1990 SC 1637. In fact, the learned, counsel for the petitioners also used this decision. This was a case where the apex Court was considering the constitutionality of the ‘expenditure tax’ as provided by the Expenditure-tax Act. The apex Court was considering the legality and legislative competence of the tax levied by the Parliament on expenditure. The impugned Act was Expenditure-tax Act, 1987, which envisaged a tax at 10 per cent ad valorem on ‘chargeable expenditure’ incurred in the class of hotels wherein ‘room charges’ for any unit of residential accommodation are rupees four hundred or more per day per individual. The ‘chargeable expenditure’ was defined by s. 5 of that Act and included the expenditure incurred in or payments made in such class of hotels in connection with the provisions of any accommodation, residential or otherwise, food or drink whether at our outside the hotel; or for any accommodation in such hotel on hire or lease : or any other services envisaged in that section. The challenge was on the ground that this tax, which was being imposed under Entry 97 of List I under Art. 248, was beyond the legislative competence as, in fact, this expenditure tax was squarely covered under Entry 62 of List II which pertained to the tax on luxuries including the tax on entertainments, amusements, betting and gambling and also could be covered under Entry 54 of List II as the transaction in question also amounted the sale of foodstuff (goods) to the customers. The Supreme Court upheld the validity of the levy of the tax. It held that the said tax could have had distinct aspects. It recognised the said distinct aspect, viz., the expenditure aspect of the transaction and held the same to be falling within the Union power. It held that aspect to be distinguished from the aspect of luxury or sale of goods. It observed as follows : “19. The submissions of the learned Attorney General that the tax is essentially a tax on expenditure and not on luxuries or sale of goods falling within the State power, must, in our opinion, be accepted. As contended by the learned Attorney General, the distinct aspect, namely, ‘the expenditure aspect’ of the transaction falling within the Union power must be distinguished and the legislative competence to impose a tax thereon sustained . . . .” [p. 1651]

30. This decision of the Supreme Court is very clear to support a proposition that even if this service tax was linked with the professional income or the professional services even then, it had a ‘distinct aspect’ of services. The tax was not on the basis that a professional was carrying on his profession like a chartered accountant or a cost accountant. The tax was, on the other hand, on the ‘professional services’ offered by him to the clients and the service aspect was a distinct aspect and could not be confused with the aspect of a tax which arose only on account of the fact that a professional was having the privilege of carrying on his profession. A tax which the professional had to pay because he has had the privilege to carry on the profession or because he was carrying on the profession in a particular State is totally distinct and separate from the tax which he has to pay on services and which tax he would be able to pass on the customer who has had the advantage of his professional services. A professional tax covered under Entry 60 cannot be transferred in sharp contradistinction with the present service tax, which is capable of being transferred to the customer who has the advantage of enjoying the services. Again, professional tax has to be paid whether a professional actually has given the professional service or not, whereas the service tax will not be payable if a professional like a chartered accountant or a cost accountant has in reality not rendered any professional service to a customer. These aspects are distinct aspects and, therefore, an aspect which entirely depends upon the services offered by the professional though may have a nexus with theprofession, yet the service becomes a distinct aspect in itself and can be legitimately taxed by the Parliament under Entry 97 of List I as has been done in the present case.

31. Mr. Chandrasekaran, the learned senior standing counsel appearing on behalf of the respondents criticised the argument of the petitioners suggesting that the nature of the tax must be separately identified and the measure of the tax should not be confused with the nature of the tax. He pointed out that though s. 67(o) and (r) which provided the measure of the tax related to the professional charges, that could not decide the real nature of this tax, which was purely a tax on service where such taxable service was clearly defined and where the measure of the tax was also specifically defined. The learned senior counsel also suggested further that the petitioners were confusing in between the tax on profession as covered by Entry 60 and the service tax introduced by the impugned legislation. Heavily relying on the observations made by the apex Court in paras 42 to 49 of the Federation of Hotel & Restaurant’s case (supra), the learned counsel pointed out that there could not be any confusion in this case between the service tax and the professional tax. The Supreme Court in that case made a specific reference to the observations of A.H.F. Lefroy in his ‘Canadian Constitution’ as also to the passage from Laskin’s ‘Canadian Constitutional Law’ extracted in the judgment of Venkatachaliah, J., as his Lordship then was. It also made a reference to the observations of the Federal Court in Central Provinces & Berar Act, In re 1939 FCR 18 which touched upon the ‘aspect’ theory. It referred to the following observations : “Here are two separate enactments, each in one aspect conferring the power to impose a tax upon goods and it would accord with sound principles of construction to take the more general power, that which extends to the whole of India, as subject to an exception created by the particular power, that which extends to the province only.” The Court also referred To the observations made in Kerala State Electricity Board vs. Indian Aluminium Co. (1976) 1 SCR 552 to the following effect: “. . . one thing that has always got to be kept clear in one’s mind is that there may be more than one aspect with regard to a particular subject-matter.” The Supreme Court further observed in para 45 as follows : “At first blush, the argument of the learned Attorney General may sound a little subtle and somewhat artificial but, on some reflection, legislative competence will indeed be seen to vary with different aspects of a subject-matter as understood in a wide sense. This can be seen from some of the decided case.”

The apex Court then referred to the decisions in Central Provinces & Berar Act case (supra), Province of Madras vs. Boddu Paidanna & Sons 1942 FCR 90 and Governor General in Council vs. Province of Madras 1945 FCR 179 and observed further as follows : “Interpreting the word ‘subject-matter’ in a broad sense it could perhaps be said that both were taxes with respect to goods. But this concept alone was not sufficient to dispose of the case because the relevant legislative entries did not talk of taxes with respect to goods but referred to taxes in respect of two different activities referable to goods (conveniently described as the ‘taxable event’) one the manufacture and production of goods and the other with the sale thereof. In the light of these legislative entries, the two different activities could properly be regarded as two “different matters for taxation and the relevant legislation was held to be one concerned with ‘sale’ and not with ‘manufacture’. In other words, there could be two enactments ‘each in one aspect, conferring the power to impose a tax upon goods’. The legislation was held not to be vitiated merely because there was an element of overlapping in that both excise duty and sales-tax became leviable on the same assessee in respect of the same goods and by reference to the same sale price when the first sale after manufacture occurs, one by reference to the ‘manufacture aspect and the other by reference to the ‘sales’ aspect. This bifurcation of the two different aspects pertaining to goods was justified by the language of the legislative entries themselves which referred separately to the different sets of activities and put them down in different legislative lists. Again, on the same principle, the manufacture of electricity may attract excise duty at the point of its captive consumption (under Entry 84 of List I) and also a tax on the consumption or sale of electricity (referable to Entry 53 of List II).”

In the same vein are the observations made by the apex Court in para 46 where the apex Court dealt with the power to levy taxes with respect to property. The apex Court relied upon the decision in Ralla Ram vs. Province of East Punjab AIR. 1949 FC 81 to hold that there were different types of levies one on the land and buildings (generally, but not necessarily, measurable by reference to the income derived or capable of being derived) and the other on the income (actually or notionally) derived from it. Similar kind of observations were made in respect of the decision in Sainik Motors vs. State of Rajasthan AIR 1961 SC 1480 in respect of the tax on passengers. We have already commented upon the Sainik Motors’ case (supra) in our separate judgment in W.P. No. 20 of 1998, etc. while we were dealing with the similar kind of challenge in respect of the service tax levied on ‘tour operators’. The challenge there was that the tax was in relation to the profession or calling by the tour operators and, therefore, was beyond the legislative competence. We have taken a view that such challenge could not be entertained much less on the ground indicated above. There also, we have dealt with the question relying on the aforementioned judgment in Federation of Hotel & Restaurant’s case (supra) (sic), entirely a distinct aspect from the aspect of the profession though there could be some latent overlapping, in our opinion, there is no overlapping in law.

The learned counsel for the respondents also brought to our notice the Division Bench judgments of the Gujarat High Court [Chartered Accountants Association & Gujarat Institute of Civil Engineers & Architects vs. Union of India (2001) 168 CTR (Guj) 4 : (2001) 252 ITR 53 (Guj) and Bombay High Court (All India Federation of Tax Practitioners vs. Union of India (2001) 168 CTR (Bom) 24]. We respectfully agree with the same. Both the Courts have upheld the constitutionality of these very provisions. Both the Courts have also relied on the decision in Federation of Hotel & Restaurant’s case (supra). We are in respectful agreement with the views expressed upholding the constitutionality of the impugned provisions. A criticism was levelled by the learned senior counsel for the petitioners against the aforementioned judgments of the Gujarat High Court and the Bombay High Court. As regards the Gujarat High Court judgment, it was said that the contention raised by the Union of India was accepted only with reference to Entry 52 of List II suggesting that the trader would be subject to the tax under Entry 60 as a professional and also a tax for sale under Entry 56. It was suggested that the High Court failed to note that the sales tax aspect was under Entry 54, whereas the aspect related to goods came under different entries. Entry 60 herein covers all the aspects of the taxes on profession. We do not agree with the criticism for the simple reason that that is not the only ground on which the Gujarat High Court has taken the view. The High Court has also relied on the decisions in Western India Theatres Ltd.’s case (supra). Kamta Prasad Aggarwal’s case (supra) as also the Federation of Hotel & Restaurant’s case (supra), which in reality clinch the issue. As regards the decision of the Bombay High Court, it was tried to be suggested that also had wrongly given a restricted interpretation to Entry 60 of List II holding that it covers only a right or privilege to practice a profession. The learned counsel very fervently argued that such a restricted interpretation could not be given to the entry. In our opinion, firstly to hold that the entry covers a tax which can be levied on account of a particular person practising a particular trade or calling would not be giving a restricted interpretation to the entry. One must in this behalf keep in mind that the entries do not create the power for taxing. They merely indicate the subjects for the legislation by the Parliament and the States. Once there were clear observations available in the apex Court judgments to the effect that the professional tax was for the carrying out of a profession, there would be no question of giving any other interpretation not warranted by the entry. Again, in rendering this criticism, the petitioners are ignoring Art. 276(2) which suggests that the taxes on profession would be irrespective of the income in the sense that whatever may be the income, there would be a limit to a tax and, thus, it will not be linked with the income. In viewing the present tax as the tax on profession and in suggesting that the tax on profession cannot be linked with the income from the profession, violence is being made to the spirit and language of Art. 276.

Further criticism was made of Bombay High Court judgment that it did not take into consideration the observations by Justice Chinnappa Reddy in International Tourist Corpn.’s case (supra) in suggesting rejection of the interpretation which would allow the legislative exercise of power by the Parliament pursuant to the residuary powers vested in it to trench upon the State legislation and which would destroy and belittle the State autonomy. It was contended by the learned counsel that, therefore, Entry 60 should be given an interpretation which would also link that entry with the professional income and thereby would take away the legislative competence of the Parliament in respect of the present service tax which has an integral connection with the professional income. We have already indicated the distinct nature of the service aspect covered in the present tax. In our opinion, it cannot be said that the Bombay High Court has not taken into consideration the caution sounded by Justice Chinnappa Reddy in International Tourist Corpn.’s case (supra). In our opinion, the criticism against the judgments of the Gujarat High Court and Bombay High Court (supra) cannot be upheld. There is one more aspect which we must consider before we close. Mr. Mohan Parasaran while supporting the arguments of the learned senior counsel appearing on behalf of the petitioners argued that the provisions of s. 65(48) and s. 67(r) and (s) are confusing and arbitrary. The contention in short is that the services which the chartered accountants give is a bundle of service. It is akin to the services rendered by any professional including a medical practitioner and a lawyer and the relationship between a chartered accountant and his clients is like that of a lawyer and his client and it cannot be merely construed as a ‘service’ under the Finance Act 32 of 1990. Though the learned counsel did not specifically argue, the tone of the argument was that the legislature has picked and chosen the chartered accountants or the cost accountants and left out the other professionals like doctors and lawyers.

This argument is obviously incorrect because it is for the legislature to select any particular service or any particular subject for taxing. The celebrated judgment in Federation of Hotel & Restaurant’s case (supra), aptly covers the subject. In para 20 the apex Court observes that though the taxing laws are outside Art. 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy the legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of itsprovisions. In the decision in Mafatlal Industries (1997) 5 SCC 536 also, the apex Court has approved the ‘theory of discretion’ in the legislature. There, the observations in the decision of R.K. Garg vs. Union of India (1981) 25 CTR (SC) 406 : (1981) 4 SCC 675 have been approved in para 87. The observations are : “Laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation that in other areas where fundamental human rights are involved. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstracts units and are not to be measured by abstract symmetry: that exact wisdom and nice adoption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterrupted experience.” Similarly, in the same decision, the following observations in Kesavananda Bharati Sripadagalvaru vs. State of Kerala (1973) 4 SCC 225 were also approved. The observations are quoted in para 88 of the judgment. They are : “In exercising the power of judicial review, the Courts cannot be oblivious of the practical needs of the Government. The door has to be left open for trial and error. Constitutional law like other mortal contrivances has to take some chances. Opportunity must be allowed for vindicating reasonable belief by experience.” Therefore, there would be no question of finding any fault with the legislature for picking up the chartered accountants or the cost accountants or the architects also for taxing their services.

The further argument of Mr. Mohan Parasaran was that the concerned provisions are confusing. According to him, the chartered accountants provide various kinds of services including the maintenance of accounts, auditing of the accounts, drawing up of balance-sheets, preparing annual reports, representing their clients before the tax authorities like representing the case before the higher authorities under s. 144A of the IT Act or appearing before the CIT, representing before the officers of the valuation cell of IT Department. The learned counsel further pointed out that the chartered accountants has to do multifarious jobs as drafting the appeal petitions, filing the same before the CIT or filling petitions under s. 263 before the CIT and at times, a chartered accountant has to brief a lawyer when an appeal is filed before the Tribunal or in the higher Courts. In fact, in the petition in para 3 all kinds of the services which the chartered accountants perform have been enumerated. It is then pointed out that there are no guidelines in the impugned legislation to suggest, as to which precisely is the service which is a taxable service out of the multifarious services offered by the chartered accountants. A practical difficulty was pointed out by the learned counsel that the chartered accountants normally issue a composite bill for all these services and such bill cannot be split up with regard to the multifarious services offered by the chartered accountants. From this it was suggested that the concerned provisions suffer from the vagueness’ and are confusing and as such, can be labelled as ‘arbitrary provisions’. We have already pointed out the observations in Federation of Hotel & Restaurant’s case (supra) as also the observations made in Mafatlal Industries Ltd.’s case (supra) and R.K. Garg’s case (supra). We wish to point out that it is only the services offered by the chartered accountants in their ‘professional capacity’ which are made taxable and the services other than of auditing and accounting provided by the practising chartered accountants are exempted from this tax. Therefore, it cannot be said that there is any confusion regarding the taxable services. In our opinion, the notification issued under s. 93 of the Finance Act No. 32 of 1994 specifying that other services excepting the one for accounting and auditing is a complete answer to the argument of the learned counsel. It specifically provides the services which are made taxable and the other services which are not taxable. This is besides the fact that there is a complete machinery available in the Act itself to decide the nature of the services. There is also a provision of appeal within the machinery of the Act and, therefore, it cannot be said that there could be confusion about the services offered by the chartered accountants or the cost accountants. In our opinion, the spirit of the pronouncements of the Supreme Court in Mafatlal Industries Ltd.’s case (supra), R.K. Garg’s case (supra) and Kesavananda Bharati’s case (supra), the challenge under Art. 14 cannot stand. We are again fortified in our view as the Bombay High Court has also taken the similar view. In paras 37 to 41 of its judgment, the Bombay High Court has repelled the attack on these provisions in relation to Art. 14. We, accordingly, hold that the impugned provisions do not in any manner offend Art. 14 of the Constitution of India. We, accordingly, hold that all the petitions have no merits and must fail. They are, accordingly, dismissed but without any orders as to the costs. Connected W.M.P. Nos. 26985 and 26986 of

1998 and 518,28852 and 28853 of 2000 are closed.

42. Before we part with the judgment, we must put on record our appreciation for the services of the learned senior counsel, Mr. Arvind P. Datar as also the learned counsel Mr. Mohan Parasaran and other learned counsel appearing on behalf of the petitioners as also the valuable assistance given to us by the learned senior Central Government standing counsel Mr. Chandrasekaran and the learned Addl. Central Government standing counsel, Mr. Veeraraghavan. We record our appreciation.

[Citation : 258 ITR 209]

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